U.S. Department of Labor Finalizes Changes to Overtime Rules

The United States Department of Labor (DOL) recently finalized a long-awaited rule raising the salary threshold for which an employee may be considered “exempt” under the Fair Labor Standards Act (FLSA). You may recall the DOL announced a similar rule change in 2016 which was enjoined nationwide by a federal court. After that rule was enjoined, the DOL continued enforcing the previous regulation while working to update the provisions again. The DOL announced the final changes on September 24, 2019.

The new rules do not impact pay for educator employees, which for the purposes of this blog means school employees who are teachers, administrators, counselors or other employees with a teaching certificate working in a position that requires certification. For  non- educator employees  who are salaried and classified as “exempt” under the FLSA, such as department directors and  managers,  those  employees must be  paid a minimum salary of $35,568.00/year ($684/week) or be paid at least  minimum  wage  plus  overtime  (or  compensatory time) by no later than January 1, 2020.

With this updated rule, the DOL sought to place less focus on the salary threshold by raising the threshold only to the amount it considered useful for screening out employees who, based on their salary, were unlikely to be exempt workers. The goal was to keep the focus of the FLSA exemption on the duties of the worker, as opposed to the salary. Therefore, if an non-educator employee is paid a fixed and pre-determined salary of at least $35,568.00/year ($684/week), we would then need to carefully analyze the employee’s duties to determine if they are exempt.

To determine which staff may be affected by this rule change, school districts should conduct an audit of all non-educator staff being paid on a salary basis prior to January 1, 2020.

Generally, to ensure compliance with the FLSA, employers must pay employees on an hourly basis at least minimum wage (currently $7.25/hour for public employers) and overtime pay unless the employee qualifies for a specific exemption. This exemption is sometimes referred to as the “white collar worker” exemption because their job duties generally require more education or formal training and are performed in an office setting. In order to meet the exemption, a three-part test must be met:

(1) The employee must be paid a fixed and pre-determined salary;

(2) The employee’s salary must be at least $35,568/year ($684/week) as of January 1, 2020; and

(3) The employee must perform executive, administrative, or professional duties. It is important to note that job titles do not control and have no bearing on exempt status. Districts should carefully analyze both the job description and the duties being performed by the employee to determine whether or not an employee’s duties qualify him or her for exemption from overtime requirements.

To be exempt as an employee in an executive position, the employee must be in a position where (1) his or her primary duty is managing the District or a recognized department or subdivision of the District; (2) the employee must customarily and regularly direct the work of at least 2 or more other full-time employees; and (3) the employee must have the authority to hire and fire other employees or the employee’s suggestions and recommendations as to the hiring, firing, advancement, etc. of other employees must be given particular weight.

To be exempt as an employee in an administrative position, the employee must be in a position where (1) his or her primary duty is the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and (2) the primary duty includes the exercise of discretion and independent judgment with respect to matter of significance. For example, superintendents, administrators, and building principals are likely exempt positions.

To be exempt as an employee in a professional position, the employee must be in a position where (1) his or her primary duty must be the performance of work requiring advanced knowledge, defined as work which is predominately intellectual in character and which includes work requiring the consistent exercise of discretion and judgment; (2) the advanced knowledge must be in a field of science or learning; and (3) the advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction. For example, RNs, school psychologists, occupational therapists, and speech language pathologists are likely exempt professional positions.

In general, non-educator employees who (1) serve as directors, supervisors, and managers; and (b) whose job duties are not directly related to instruction, but rather to general business matters may be impacted by the new rule. This could include: CFOs; Finance Directors; Accounting Specialists; Facilities Directors; Transportation Directors; Nutrition/Food Service Directors and Cafeteria Managers; Public Relations Directors and Communication Coordinators; Technology/IT Directors; Safety and Security Directors; and RNs. Further, Districts should be aware of the following:

  • School Nurses (LPNs): Not exempt and must be paid at least minimum wage plus overtime/com time.
  • School Psychologists and Occupational Therapists: To the extent they are employees of the district and not independent contractors, they likely meet the professional exemption and must be paid a salary meeting the new threshold, or at least minimum wage plus overtime/com time.
  • PATs (even if they are certificated): Job duties should be carefully analyzed, but most likely these employees are not exempt and they must be paid at least minimum wage plus overtime/comp. time.
  • Teacher Aides (even if they are certificated): Job duties should be carefully analyzed, but most likely these employees are not exempt and they must be paid at least minimum wage plus overtime/com time.
  • Other employees who are certificated but who are working in a position that does not require certification: Job duties should be carefully analyzed, but most likely these employees are not exempt and they must be paid at least minimum wage plus over- time/com

Keep in mind that, if an employee is exempt under the administrative exemption and their job duties are directly related to instruction (such as process coordinators and instructional coaches), then the salary threshold does not apply – the district is only required to pay them at least the entrance salary for teachers.  For all other exempt employees, the district must pay at least the new salary threshold (as of January 1) or pay at least minimum wage plus overtime.

Districts may choose to take the following steps to evaluate compliance:

  1. Identify all non-educator employees who are paid less than $35,568/year ($684/week) on a salary, rather than hourly, basis.
  2. Carefully review the duties of each identified position to ensure that the position properly can be categorized as exempt. This is a good opportunity to ensure that no positions within your district have been misclassifi
  3. For all exempt positions which are assigned a salary of less than $35,568/year ($684/week), decide whether to: (a) increase the salary to meet the new threshold; or (b) restructure the position as non-exempt so that the employee tracks their hours and will be paid overtime or granted compensatory time.

Because the change will become effective during the middle of the school year, districts may choose to pay overtime (or compensatory time) through the end of this school year, to allow for any desired restructuring of positions or compensation to take place so those changes are effective for the 2020-2021 school year. This may be a sensible approach for Districts that sign employment contracts with non-educator staff in order to avoid having to sign new contracts mid-year.

If you have a currently exempt employee who is paid $35,568/year ($684/week)  or less, you are not required to increase their pay, but you must track their hours and ensure they are paid any appropriate overtime rate or granted compensatory time for any time worked in excess of 40 hours per work week. If you are moving any employees from exempt to non-exempt status, you may wish to follow these steps:

  1. You may pay an hourly rate or keep the employee on a salary basi If you continue to pay the employee on a salary basis, the district must:
    • Calculate an hourly rate for overtime pay.
    • Keep accurate records of the time worked by the employ
    • Clearly communicate working hour expectations to the employee (including working from home and checking email), and train the employee on how to accurately record their
    • Consider developing and issuing written directives for the employee’s work hours, including overtime wor
    • Pay the employee overtime pay (or award compensatory time) for any hours worked in excess of 40 hours/week.
  2. Consider restructuring the employee’s job duties to remove exempt duties, and shift those duties to an exempt position.
  3. Budget and plan for anticipated overtime cost Consider hiring additional hourly staff to reduce overtime pay (or compensatory time awarded).
  4. Communicate with employees who will become non-exempt and have to track their hour
    • Address any morale issues, including a perception that the employee has been demoted because they are no longer “salaried” and have to track their hours.
    • Address practical issues, like restrictions on working from home and reading/sending emails outside of set work hour
    • Be transparent and communicate that federal law concerning which employees may be paid a set salary has changed, which may require the district to restructure position

Finally, it is important to be aware the DOL has expressed its intent to update this threshold more regularly than it has in the past (the last update to the threshold was in 2004), but has declined to set a schedule or fixed timeline by which it plans to issue updates.

If you have questions or would like assistance in evaluating FLSA compliance, please reach out to one of our team members at EdCounsel!